Income Tax Regulations (Amendment) 1998 No. 163
EXPLANATORY STATEMENT
STATUTORY RULES 1998 NO. 163
Issued by. Authority of the Assistant Treasurer
INCOME TAX ASSESSMENT ACT 1936
INCOME TAX REGULATIONS (Amendment)
Purpose of the regulations
The purpose of the regulations is to enable employees to have their expected entitlement to the savings tax offset (the offset) taken into account when determining the amount of the tax instalments to be deducted from their salary or wages.
Background
Subsection 221C(1) of the Act authorises the making of regulations to prescribe rates of deductions to be made by employers from the salary or wages of their employees to enable the collection by instalment of income tax payable by employees. This is known as the Pay-As-You-Earn (PAYE) system. Subdivision 2 of Division 2 of Part 7 of the Income Tax Regulations sets out the prescribed rates of tax instalment deduction (TID) in respect of payments of salary or wages to employees.
Reason for the Amendments
The offset was inserted in the Income Tax Assessment Act 1997 by the Taxation Laws Amendment Act (No. 3) 1998. It operates to reduce income tax otherwise payable by a taxpayer who has savings or investment income and/or undeducted superannuation contributions.
The amendments make it possible for a taxpayer to benefit from his or her expected entitlement to the offset through the PAYE system by reducing the amount of TIDs in respect of salary or wages paid by his or her employer. These taxpayers elect to have the offset available through the PAYE system by completing and lodging a new employment declaration.
Details of the amending regulations are set out in the Attachment. The regulations commence on 1 July 1998.
ATTACHMENT
Details of Amendment of Income Tax Regulations
The amendments:
* provide that the regulations commence on 1 July 1998 (subregulation 1.1)
* provide that the Income Tax Regulations are amended as set out in these amending Regulations (subregulation 2.1);
* define the "savings offset amount" and "savings tax offset" (subregulation 3.1). "Savings tax offset" means an employee's entitlement to the tax offset as calculated under Subdivision 61-A Income Tax Assessment Act 1997. The "savings offset amount" is the amount of savings tax offset (the offset) to which the employee claims to be entitled in an employment declaration;
* provide a method for employers to calculate the reduction to TIDs in respect of employees claiming the offset. An employee's TIDs will be reduced by the weekly savings offset amount which is the savings offset amount to which the taxpayer claims to be entitled multiplied by 1.9% (subregulation 4.1).
* Multiplying by 1.9% approximates the result obtained by dividing the total offset amount for the year by 52 weeks and is consistent with the existing method used in relation to concessional and zone rebates and the family tax assistance benefit;
* require employees, who desire to reduce their TIDs by their expected entitlement to the offset, to furnish their employer with a new employment declaration to that effect. Paragraphs 85(1)(a), (b), (c), (d), (da) and (e) are rewritten to simplify the regulation (subregulation 5.1);
* require employees, who desire to have their expected entitlement to the offset taken into account by their employer in calculating their TIDs, to include a savings offset amount and the sum of the offset amount and other rebate and family tax assistance benefit amounts (where applicable) in the declaration (regulation 6);
* require the Commissioner to specify a savings offset amount when issuing a certificate under regulation 92 where the employee has claimed to be entitled to the savings offset in the employment declaration (subregulation 7.1);
* provide that where an employee lodges with an employer a certificate issued by the Commissioner under regulation 92 which specifies a savings offset amount, the employer is required to take the amount into account when calculating TIDs (subregulation 8.1); and
* provide that an employee is required to lodge a further employment declaration if there is a change in circumstances which reduces his or her entitlement to the offset (subregulation 9.1).
Overview
The Income Tax Regulations (Amendment) 1998 No. 163, issued under the authority of the Assistant Treasurer, amends the Income Tax Assessment Act 1936 to introduce a mechanism for employees to have their expected entitlement to the savings tax offset considered when determining the amount of tax instalments to be deducted from their salary or wages. The regulations are designed to integrate the savings tax offset, which was introduced by the Taxation Laws Amendment Act (No. 3) 1998, into the Pay-As-You-Earn (PAYE) system. This amendment allows taxpayers to benefit from the savings tax offset by reducing their tax instalment deductions through their employers, provided they complete and submit a new employment declaration.
The amendments, which took effect on 1 July 1998, aim to simplify the regulation process by defining key terms such as "savings tax offset amount" and "savings offset amount", and by outlining a method for employers to calculate the reduction in tax instalment deductions. Employees are required to declare their savings offset amount and other relevant rebate amounts in their employment declaration, and employers must adjust tax instalment deductions accordingly. The Commissioner is mandated to specify the savings offset amount when issuing a certificate under regulation 92, and employers must account for this amount in their tax calculations. Additionally, employees must update their declarations if there is any change in their circumstances that affects their entitlement to the savings tax offset.
Scope and Application
The Income Tax Regulations (Amendment) 1998 No. 163 applies to employees within Australia who wish to have their expected entitlement to the savings tax offset taken into account when determining the amount of the tax instalments deducted from their salary or wages under the Pay-As-You-Earn (PAYE) system. This Act applies to the entire Commonwealth of Australia, ensuring that all employees under federal jurisdiction can benefit from these amendments. The regulations are designed to integrate the savings tax offset into the existing PAYE system by modifying the prescribed rates of tax instalment deduction (TID) to reflect the employee's entitlement to the offset. Employees must complete and submit a new employment declaration to their employer to elect to have the offset available through the PAYE system. The regulations also impose obligations on employers to calculate the reduction to TIDs based on the employee's claimed savings offset amount and on the Commissioner to specify this amount when issuing a certificate under regulation 92. If an employee's circumstances change, affecting their entitlement to the offset, they must submit an updated employment declaration. The regulations do not specify any exclusions, exemptions, or thresholds beyond the outlined process for claiming the offset through the PAYE system.
Key Provisions
The Income Tax Regulations (Amendment) 1998 No. 163 introduces several key provisions primarily aimed at employees who wish to benefit from the savings tax offset through the Pay-As-You-Earn (PAYE) system. Under these amendments, employees can now have their expected entitlement to the savings tax offset taken into account when determining the amount of tax instalments deducted from their salary or wages (subregulations 3.1 and 4.1). This is achieved by employees lodging a new employment declaration with their employer, which includes their savings offset amount and any other applicable rebate or benefit amounts (regulation 6). Employers are then required to calculate the tax instalment deduction (TID) by reducing it by the weekly savings offset amount, which is the savings offset amount multiplied by 1.9% (subregulation 4.1).
The amendments impose specific obligations on both employees and employers. Employees who wish to reduce their TIDs by their expected entitlement to the offset must provide their employer with a new employment declaration that includes their savings offset amount and the sum of the offset amount and other rebate and benefit amounts (regulation 6). They must also lodge a further employment declaration if there is a change in circumstances that affects their entitlement to the offset (subregulation 9.1). Employers, on the other hand, are required to take into account the savings offset amount specified by the Commissioner when calculating TIDs, provided the employee lodges a certificate issued by the Commissioner under regulation 92 (subregulation 8.1). The Commissioner must specify a savings offset amount when issuing such a certificate (subregulation 7.1).
There are no specific offences, penalties, or civil/criminal consequences outlined in the text for non-compliance with these regulations. However, the regulations do not explicitly state that non-compliance will be without consequence. It can be inferred that any failure to comply with these provisions might lead to incorrect tax deductions, potentially resulting in either overpayment or underpayment of tax, which could lead to administrative or financial repercussions for the employee or employer. For instance, employers who fail to correctly calculate TIDs based on the employee’s savings offset amount might face scrutiny from the tax authorities, and employees might need to adjust their tax payments at the end of the financial year to correct any discrepancies.